Famous works: ‘The Pure Theory of Capital’, ‘The Road to Serfdom’, ‘The Use of Knowledge in Society’

Friedrich von Hayek was an Austrian economist who won the Nobel Prize along with Gunnar Myrdal in 1974 for their pioneering work on money theory. He was awarded the first ever Hanns Martin Schleyer Prize in 1984 and received the US Presidential Medal of Freedom in 1991.

Hayek was a great exponent of the Austrian school of economics, Hayek’s economic thoughts were originally within the realm of socialism, but his thinking morphed into classical liberalism after he came across Ludwig von Mises’ book ‘Socialism’. Hayek was so intrigued by von Mises’ work that he, along with a select few students, began taking private seminars with his new idol.

Hayek argued that the price mechanism is incredibly important as it conveys information quicker than a central planner is able to. The price mechanism helps decentralised agents to share and synchronise information, coordinate their plans and achieve mutually beneficial trade through self-organisation. Hayek argued that this in in stark contrast to central planning, which is much slower to adapt to changes in prices.

Hayek also developed the Austrian theory of the business cycle. He asserted that the business cycle is a result of the central bank’s inflationary credit expansion which, over time, causes artificially low interest rates and a misallocation of capital. According to Hayek, “the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process”.

Interesting Facts

The ‘von’ part of Hayek’s name is a tag of nobility in Austria and, in 1919, Hayek’s family had to drop it from their family name due to an Austrian law that was put into effect.

Hayek joined an artillery regiment during Austria’s war with Hungary in 1991. He served on an aircraft as a spotter and lost part of his hearing as a result of his duties.

“Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.”